acct 241 ch 12

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In his letter to Stockholders in the annual report, True Fax's president states that this year was the most profitable year in the company's history. Actually, the company did better profit wise last year according to the audited financial statements. What type of opinion should the auditors issue?A. an unqualified opinion with an emplasis on a matter paragraph noting the inconsistency
B. an adverse opinion because the annual report does not present fairly the financial condition of the company
C. an "except for" qualification because the president's letter is not part of the audited financial statements
D. a disclaimer of opinion because the additional information accompanying the financial statements wasn't audited

A. an unqualified opinion with an emplasis on a matter paragraph noting the inconsistency

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The auditors conclude that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory paragraph that specifically mentions
managments plans/ going concern
A. yes/yes
B. yes/noC. no/yes
D. no/no

In which of the following situations would auditors ordinarily express an unquaified audit opinion with an explanatory paragraph?A. the auditors wish to emplasize that the entity had lost a significant customer
B. the auditors decide to not refer to not refer to the report of other auditors as a basis, in part, for the opinion
C. the entity issues financial statements that present financial position and results of operations but omits the footnote
D. at the entity's request, their attorney has refused to respond to the auditor's inquiries about ongoing litigation

A. the auditors wish to emplasize that the entity had lost a significant customer

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The principal auditors decide not to take responsibility for the work of other auditors CPA who audited a wholly owned subsidiary of the principal auditors' client. The total assets and revenues of the subsidiary represent 27% and 28% of the related consolidated totals. What type of opinion should the principal auditors issue?
A. qualified opinionB. unqualified opinion
C. adverse opinion
D. disclaimer of opinion

B. unqualified opinion

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The opinion paragraph of the auditors' report states: "In our opinion, with the exception of the effects of not observing inventory in one of the client's Siberian wareshouses, as discussed in the preceding paragraph, the financial statements present fairly, in all material respects..." This paragraph expresses a(n)
A. adverse opinion
B. opinion modified because of an uncertainty
C. unqualified opinionD. qualified opinion

D. qualified opinion

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In which of the following circumstances would auditors be most likely to express an adverse opinion?A. the financial statements are not in conformity with the FASB Statements regarding the valuation of marketable securities
B. the chief executive officer refuses the auditors access to minutes of board of directors' meetings
C. the entity's internal control is so poor that control risk must be assessed at the maximum
D. the entity files for bankruptcy

A. the financial statements are not in conformity with the FASB Statements regarding the valuation of marketable securities

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Auditors were unable to obtain sufficient appropriate evidence concerning certain transactions because of a fire destroyed all the company's records. Given these circumstance, auditors would choose between a(n)A. disclaimer of opinion and a qualified opinion
B. adverse opinion and a disclaimer of opinion
C. qualified opinion and an unqualified opinion with an explanatory paragraph
D. unqualified opinion with an explanatory paragraph and an adverse opinion

A. disclaimer of opinion and a qualified opinion

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Auditors who are reporting on financial statements that contain a material departure from GAAP should include a separate explanatroy paragraph and
A. disclaim an opinion on the financial statements
B. not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote
C. express a qualified opinion or disclaim an opinionD. express a qualified or adverse opinion

D. express a qualified or adverse opinion

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When auditors mention consistency in their report, a reader of the financial statements may inferA. that GAAP have been not consistently observed in the current period in relation to the preceding period
B. that a reclassification of items or change in classifications has occurred
C. that a material departure from GAAP has been edtected
D. nothing about application of accounting principles within the period

A. that GAAP have been not consistently observed in the current period in relation to the preceding period

A CPA finds that the client has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the CPA would choose between which reporting options?
A. unqualified opinion or qualified opinion
B. unqualified opinion or disclaimer of opinion
C. emphasis paragraph with unqualified opinion or an adverse opinionD. qualified opinion or adverse opinion

D. qualified opinion or adverse opinion

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An auditory has found that the client is suffering financial difficulty and the going concern status is seriously in doubt. Even though the client has placed adequate disclosures in the financial statements, the CPA must choose between which of the following audit report alternatives?A. unqualified report with a going concern explanatory paragraph or disclaimer of opinion
B. qualified opinion or adverse opinion
C. standard unqualified report or a disclaimer or opinion
D. standard unqualified report or adverse opinion

A. unqualified report with a going concern explanatory paragraph or disclaimer of opinion

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Which of these situations would require an auditor to append an explanatory paragraph about consistency to an otherwise unqualified audit report?A. client changed its inventory costing method from FIFO to LIFO
B. client sold one of its subsidiaries and concolidated six this year compared to seven last year
C. client changed its estimate allowance for uncollectible accounts recievable
D. client corrected a prior mistake in account for interest capitalization

A. client changed its inventory costing method from FIFO to LIFO

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Wolfe became the new auditor for Royal Corporation, succeeding Mason, who audited the financial statements last year. Wolfe needs to repot on Royal's comaprative financial statements and should write in this report an explanation about another auditor having audited the prior year
A. describing the audit and the opinion and naming Mason as the predecessor auditorB. describing the prior audit and the opinion but not naming Mason as the predecessor auditor
C. describing the audit but not revealing the type of opinion Mason gave
D. only if Mason's opinion last year was qualified

B. describing the prior audit and the opinion but not naming Mason as the predecessor auditor

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When other independent auditors are involved in the current audit of parts of the client's business, the principal auditor can write an audit report that (2 answers):
A. names the other auditors, describes their work, and present only the principal auditor's report
B. does not mention the other auditor and gives an unqualified opinion in a standard unqualified report
C. places primary responsibility for the audit report to the other auditorsD. mentions the other auditor, describes the extent of the other auditor's work, and gives an unqualified opinion

D. mentions the other auditor, describes the extent of the other auditor's work, and gives an unqualified opinion

b. does not mention the other auditor and gives an unqualified opinion in a standard unqualified report

Under which of the following conditions can a disclaimer of opinion never be given?
A. the auditor owns stock in the client corporationB. the auditor has found that the client has used the NIFO (next in, first out) inventory costing method
C. the client does not let the auditor have access to evidence about important accounts
D. going concern problems are overwhelming the company

B. the auditor has found that the client has used the NIFO (next in, first out) inventory costing method

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Where will you find an auditor's own responsibility for expressing the opinion on financial statements?
A. unstated but understood in the introductory paragraph of the standard unqualifed report
B. stated explicitly in the scope paragraph of the standard unqualified repotC. stated explicitly in the introductory paragraph of the standard unqualified report
D. stated explicitly in the opinion paragraph of the standard unqualified report

C. stated explicitly in the introductory paragraph of the standard unqualified report

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Company A hired Sampson & Delila, CPAs to audit the financial statements of Company B and deliver the audit report to Megabank. Which is the client?A. Company A
B. Megabank
C. Company B
D. Sampson & Delila